REITs And Homebuilders Retreat As Yields Return To 2018 Highs

Real Estate Weekly Review
Despite a rally in the S&P 500 (SPY), REITs and homebuilders took a leg lower this week as the 10-Year yield climbed back towards 2018-highs. The REIT ETFs (VNQ and IYR) finished the week lower by 1% while homebuilders (XHB and ITB) declined 0.5%. Inflation expectations have picked up amid concern over tariffs, wages and commodity prices.
Because REIT valuations have been driven almost entirely by macroeconomic conditions in recent months, commodity prices have become an important factor to watch for real estate investors due to their impact on interest rates and inflation. The most significant culprit of rising inflation expectations has been crude oil (USO), which climbed 2% on the week and is now higher by more than 30% year over year. Despite booming US production, prices are up 30% YoY as the OPEC cartel continues to restrict production, aided by the collapse of Venezuela’s oil production capability.

(Hoya Capital Real Estate, Performance as of 1pm Friday)
In other areas of the real estate sector, mortgage REITs (REM) finished the week nearly 2.5% higher while international real estate (VNQI) finished 1% lower. Within the Equity Income categories, we note the performance and current income yield of the Utilities, Telecom, Consumer Staples, Financials, and Energy. Within the Fixed Income categories, we look at Short-, Medium-, and Long-Term Treasuries, as well as Investment Grade and High Yield Corporates, Municipal... Read more